The Hambro name has been closely associated with the investment world for more than 200 years. Founded in 2010, James Hambro & Partners (JH&P) is an independent private asset management partnership with assets under management, advice and administration of £2.8 bn ($3.9 bn). The partnership offers institutional-quality investment management to high-net-worth families, trusts, individuals, charities and associated portfolios.
William Francklin joined JH&P in July 2017 and has more than 30 years’ experience managing portfolios. He began his career in investment management in 1981, working at Morgan Grenfell Asset Management in both London and New York, and latterly at Waverton Investment Management. He has also managed assets for US clients for a number of years. As JH&P has SEC authorization (as of July 2017), Francklin will continue to manage global portfolios for US clients based in the US and overseas.
Is there a connection between J O Hambro Capital Management and James Hambro & Partners (JH&P)?
The two businesses are completely separate economic entities, managing different pools of money for different clients, so there’s no commercial connection. But the founder of JH&P is Jamie Hambro who was previously chairman of J O Hambro Capital Management (JOHCM), which was acquired by Australia’s BT Investment Management in 2011. Jamie remains on JOHCM’s board and some of JOHCM’s partners are investors in JH&P.
Your current assets under management total $2.8 bn. Do you have an upper target figure in mind?
In the short term, we would like to get assets under management up to £3 bn; in the medium term, we’d like to get that up to £5 bn.
What portion of assets under management are held in equities, and what’s your geographic split?
Seventy percent is in equities. At this stage, as we’re predominantly a UK private client business, the split is 30 percent UK equities and 40 percent overseas equities. The remaining 30 percent is in fixed income and alternatives.
I understand you have SEC approval. Can you tell us more?
Historically, I started looking at offshore trusts for US clients that could not have a US money manager. These trusts are completely transparent from an Internal Revenue Service point of view. We also ran specialist portfolios for US family offices that invest outside of the US – for example, a specialist European portfolio. I work for US clients based in London, too.
How is the investment team structured?
We have areas of responsibility. We have people looking at the UK and Europe (Mark Leach), Asia and Japan (Camilla Cecil, who until recently worked at Ruffer in Hong Kong) and the US (me and Charlie Underwood). That said, we have a ‘buy-in’ approach so each idea goes to the stock selection meeting and has to get approval from that meeting to go on the recommended list.
So you work from a recommended list?
Yes, we do have a recommended list and we are very collegiate in what we do. For example, often at least eight of us will meet a company. We produce very detailed work on companies.
How would you describe James Hambro’s investment philosophy?
We look for high-quality companies where we know the management well. Quality is very important. We like leading companies in their respective fields.
Which screens do you use?
We are not screen-driven – we don’t use Credit Suisse’s HOLT, for example – but we do look at screening measures to check our research. We just like to check that our investment thesis stands up.
Are there any sectors you won’t invest in – tobacco, defense, and so on?
No sectors are excluded though some of our clients prefer not to invest in certain sectors.
Do you have a market cap cut-off?
We typically invest in large-cap and mid-cap stocks. Occasionally, we will invest in a small firm if we have very detailed knowledge of the company and know management really well.
What’s your average turnover?
Historically, it has been close to 25 percent. We are, however, very much looking to invest in companies for the long term.
Which benchmarks do you use?
For UK clients we use Asset Risk Management and for international clients we use the MSCI World Index. In practice, our clients look at our returns both on a relative and an absolute basis.
What’s your active share ratio?
This is not a figure we monitor.
Are there any themes you favor?
We like leading growth companies – such as Visa, for example – and historically attractive total-return stocks with income, such as Diageo, which we have owned for a long time. In Asia, we also like a growth story like AIA, a life insurance company that came out of AIG and is a leading life company in the region.
Your investment process is bottom-up – is that correct?
We are bottom-up stock pickers but have a very detailed asset allocation process. You cannot totally divorce stock selection and asset allocation. Top-down macro investors are currently very bullish on emerging markets but we do not have much direct emerging markets exposure. We are always wary of places where we might have big currency risk. Emerging markets may do well this year, are very much in vogue and are deemed to be cheap.
Can you discuss some of your larger holdings?
Visa is one we have owned for a long time here at JH&P (and I owned the stock for a number of years prior to joining). It is the leading company in debit and credit worldwide. There are very high barriers to entry in the sector. Its secular growth is driven by the shift to electronic payment and away from cash. It is an incredibly high-margin business – the highest of any company in the S&P 500. It has a consistently high growth rate and 59 percent market share of card volume in the US compared with Mastercard, which has 26 percent and American Express, which has 14 percent.
Diageo was originally formed from the merger of Guinness and distillers Grand Metropolitan in a 1997 hostile takeover, which turned out to be very good for shareholders because it happened before people recognized the power of global brands. Diageo owns some very powerful brands including Johnnie Walker, Gordon’s gin and Smirnoff vodka, among many others. It is a long-term holding that generates free cash flow and has a rising dividend yield.
AIA is a more recent holding. It gives our clients exposure to the fast-growing life insurance business in Asia, including China. And then there’s Samsonite, the world leader in travel luggage with more than four times the market share of the next largest player. It’s a beneficiary of growth in the global tourism industry, and it’s seeing fast growth from Asia.
Any recent sales? If so, why?
WPP is an example of a share we sold in July 2017 as we were increasingly concerned about the possibility of a profits warning. We continue to believe advertising agencies will be under pressure from the shift to digital that favors Facebook and Google, in particular.
Do you prioritize buybacks or dividends?
Probably dividends but it’s hard to be too dogmatic. US companies have historically preferred buybacks while UK companies tend to prefer dividends.
Does a stock have to have a yield?
It’s not essential for us but for some clients yield is very attractive. Ten-year government bond yields are currently very low while yields on two-year government bonds are negative.
Do you have a strict price target when you buy a stock?
We do not have a strict price target but if shares become very expensive while the fundamentals remain good, we will top-slice the position from time to time. If fundamentals change, we will sell.
What’s your average position?
Typically 3 percent for a blue-chip holding and 2 percent for a mid-cap.
Is corporate governance important?
We do follow corporate governance and might be involved if we deemed it necessary.
Do you have to meet management before you buy a stock?
We rarely invest in a company where we have not met the management. Ideally we like to meet management one on one but group meetings are fine, too. We also attend conferences and will definitely attend the next Nasdaq conference in London. We aim to meet the management of companies we invest in, including the CEO or CFO, at least once a year.
How will Mifid II affect you?
Mifid II rules mean we have set aside a budget so we can afford to pay for research every year whether markets go up, down or sideways. We also try to speak with companies directly to arrange meetings and we use independent service providers.
Can you name any companies whose IR really stands out?
Lockheed Martin is a company that springs to mind. The company visits investors in London on a regular basis, which is very reassuring for long-term investors. The IROs are also incredibly well informed.
Why should corporates target James Hambro?
Our clients are people who genuinely want to invest in long-term successful businesses. Our clients do not like high turnover – so we invest for the long run.
Foreign attraction
London-based James Hambro & Partners (JH&P) has made a bet on growing interest from American investors anxious about the political situation in the US and wanting to have a bigger portion of their wealth managed abroad.
At a time when an increasing number of UK-headquartered investment managers are renouncing servicing US-based clients, JH&P has gone for a full registration with the SEC, which stipulates that ‘non-US persons advising US persons are subject to the [US Investment Advisers Act of 1940] and must register under the act unless eligible for one of the exemptions.’ Family offices, which are deemed to service highly financially educated clients, are not required to obtain SEC authorization, and registration is optional for foreign private advisers with fewer than 15 clients in the US and aggregate assets under management attributable to US clients of less than $25 mn.
‘JH&P believes US investors will diversify out of their core investment strategy of US equities and bonds, which has served them so well for the last three decades,’ explains William Francklin, a JH&P partner. ‘There is currently a significant valuation disparity between US and non-US equities, with US firms currently representing 54 percent of the MSCI World Index. We believe this will decline over the medium term, especially as some faster-growing emerging markets including China and India gain more attention. US investors will continue to increase their weightings outside the US dollar at a time when the deficits in the US are likely to rise.’
Gill Newton is a partner at Phoenix-IR, an independent investor relations consulting firm
This article first appeared in the Spring 2018 issue of IR Magazine.
